INCOME TAX APPELLATE TRIBUNAL, SPECIAL BENCH, PUNE Before Shri Vimal Gandhi, Hon ...

101 Pages·2009·0.38 MB·English

Brahma Associates & Ors
– Special Bench

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INCOME TAX APPELLATE TRIBUNAL,
SPECIAL BENCH, PUNE

Before Shri Vimal Gandhi, Hon’ble President
Shri Pramod Kumar, Accountant Member, and
Shri Mukul Shrawat, Judicial Member

ITA No. 1417/PN/06
Assessment year 2003-04
Brahma Associates ………………………Appellant
H1/2, Brahma Paradise,
Off Mangaldas Road, Pune 411 001

Vs.

Joint Commissioner of Income Tax (OSD) …………………..Respondent
Circle 4, Pune

ITA No. 111/PN/07
Assessment year 2003-04

Dhareshwar Promoters & Builders ………………………Appellant
Sr No. 128/2 C , SUS Road,
Abhjinav Vidhyaly, Pashan
Pune 411 021

Vs.

Income Tax Officer …………………..Respondent
Ward 4(6), Pune

ITA No. 5/PN/07
Assessment year 2003-04

Kumar Behary Rathi ………………………Appellant
Kumar Capital, 2nd floor
2413, East Street
Pune 411 001

Vs.

Dy Commissioner of Income Tax …………………..Respondent
Circle 4, Pune

Appellants by : Dr Sunil Pathak
Respondents by : Shri S D Kapila, and
Shri Prakash Chandra Yadav

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Brahma Associates & Ors
– Special Bench

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ITA No. 164/PN/07
Assessment year 2003-04

Raviraj Kothari Punjabi Associates ………………………Appellant
Sl No. 68/7/8/9, Behind Sopan Baug
B T Kawade Road, Ghorpadi
Pune

Vs.

Dy. Commissioner of Income Tax …………………..Respondent
Circle 4, Pune

ITA No. 165/PN/07
Assessment year 2003-04

Tushar Developers ………………………Appellant
1239, Bhawani Peth,
Pune 411 042

Vs.

Income Tax Officers …………………..Respondent
Ward 5(3), Pune

Appellants by : Shri V L Jain
Respondents by : Shri S D Kapila, and
Shri Prakash Chandra Yadav

Interveners

ITA No. 113/PN/2007 Apurva Properties & Estates Limited
( Represented by Shri Rajan Vora)

ITA No. 1193/PN/08 Khinvsara Chavan Associates
ITA No. 349/PN/08 Anand Construction, Pune
(Represented by Shri S R Puranik)

ITA Nos.3365,4465/Mum/07 Harsh Unique Construction
(Represented by Shri S K Tulsiyan)

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Brahma Associates & Ors
– Special Bench

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O R D E R

Per Pramod Kumar :

1. On recommendations dated 30th August 2007, made by a Division
Bench of this Tribunal, Hon’ble President has constituted this Special
Bench. The Division Bench had noted that there are clear divergences in
the views expressed by the various Division Benches of the Tribunal on
certain issues relating to Section 80 IB(10) of the Income Tax Act, 1961,
and, therefore, a larger bench is required to consider the following
questions:

1. Whether deduction under section 80 IB (10), as
applicable prior to 1st April 2005, is admissible in case of a
‘housing project’ comprising residential housing units and
commercial establishments?

2. In case the question no. 1 is answered in affirmative,
whether considering facts and circumstances of a particular
case, a proportionate deduction should be allowed?

3. In case the answers to question no. 1 and 2 are in
affirmative, whether the limit prescribed by clause (d) of Section
80 IB (10) should operate?

2. Hon’ble President accepted these recommendations of the Division
Bench and, accordingly, constituted this Special Bench to resolve the
conflict between Division Bench decisions. That is how this Special Bench
came to be in seisin of the matter.

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– Special Bench

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3. Learned counsel appearing for the appellants have prayed that
Brahma Associates be taken as the lead case, and Dr Pathak be allowed
to lead the arguments. Shri Kapila, learned Special Counsel appearing for
the respondents, did not object to this prayer. We have, therefore,
accepted the prayer of the appellants and taken up Brahma Associates as
the lead case. Dr Pathak, learned counsel for this assessee, has also
been permitted to lead the arguments.

4. Dr Pathak suggests some minor amendments in the questions
before this Special Bench. He suggests that in second question words
“under section 80 I B (10) to the extent of profits from the residential
units” be added after the word ‘deduction’ and before the words ‘should
be allowed’. Similarly, so far as third question before the Special Bench is
concerned, Dr Pathak’s suggestion is that the words “introduced by
Finance (No. 2) Act, 2004” be added after the words ‘clause (d) of
Section 80 IB(10)’ and before the words ‘should operate’. It is submitted
that these minor changes will lead to greater clarity about the controversy
requiring our adjudication. He, however, admits that there will be no
impact of these changes so far as core issues requiring our adjudication
are concerned. Shri Kapila, learned Special Counsel for the Revenue,
objects to these suggestions. It is his contention that once the questions
for consideration by the Special Bench are framed by the Hon’ble
President, it is not open for the Bench to tinker with the same. The matter
will have to go back to the Hon’ble President for reframing of questions.
In view of this objection, Dr Pathak does not press for the suggested
changes to the questions.

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Brahma Associates & Ors
– Special Bench

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5. Briefly stated, material facts of the case, so as far as relevant to
the issues before this Special Bench, are like this. The assessee before
us is an Association of Persons (AOP) and is formed by a single joint
venture agreement between Brahma Builders and some members of
Surendra Kumar B Agarwal family. The assessee has contructed a project
called ‘Brahma Estate’ situated at Knodhwa Khurd, Tal Haveli, District
Pune. The project was started on 14th August 2000 and it was completed
on 3rd October 2005. The total area of the plot was 34,209.79 square
meters. The built up area of the residential flats was 24,583.31 square
meters, whereas built up area of the commercial premises was 7,128.87
meters. The percentage of commercial area to the total area was thus
20.83%. Pune Municipal Corporation had duly approved the aforesaid
project. The approval letter dated 6th October 2000, a copy of which was
placed before us at page 13A of paper book, described the project as
“New/ Residential + Commercial”. On these facts the Assessing Officer
noted as follows:

“6.3 Project not purely residential

Pune Municipal Corporation has classified the project as
‘Residential + Commercial. Thus, the said project is not a purely
housing project.”

6. The Assessing Officer then proceeded to observe that “Section 80
IB (10) gives deduction for housing project” and that “From a plain
reading of the section, it is very much clear that these deductions are
meant for housing project meaning project consisting of residential units”.

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– Special Bench

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The Assessing Officer further observed that “While giving deduction, one
has to keep in mind the entire project in totality, as approved by the
municipal corporation”. A reference was then made to the Rules framed
by the Pune Municipal Corporation. Rule 13.6 of the said Rules, as noted
by the Assessing Officer, provided that “ In the case of layouts or
subdivision of areas in residential and commercial zones, provision shall
be made for ‘convenience shopping’” and that “Such convenience
shopping area shall not be less than 2%, but shall not, however, exceed
5% area of the plot”. The Assessing Officer further took note of Rule 13.6
(ii) of the Development Rules which provides that “Such convenience
shops shall not have an area of more than 20 square meters”. The
Assessing Officer also noted that even the usage of such convenience
shops can only be for specific purposes, in terms of the provision of the
Rules framed by the Pune Municipal Corporation. Analyzing the facts of
the case, the Assessing Officer noted that none of these three conditions
are satisfied. Not only the commercial usage of plot is 20%, the size of
shops and offices is more than 20 sq mtr and the shops are being used
for all sort of commercial purposes including sale of plywood and
showrooms for mobile communication services. The Assessing Officer
then rejected the claim of deduction under section 80 IB (10) by
observing as follows:

As observed earlier, deduction under section 80 IB (10) is
allowable only for housing projects. …. the housing project is
not defined in the section, but Section 80 IB (10) says housing
projects as approved by the local authority. In the case of the
assesse, local authority is Pune Municipal Corporation. The
assessee’s project, Brahma Estate, has been approved by PMC

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– Special Bench

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as ‘Residential + Commercial’. This is very much evident from
the approved layout plan. Thus the assessee’s project has not
been approved by the Pune Municipal Corporation as a housing
project, but it has been approved as ‘residential + commercial’
project. Therefore, the said project is not eligible for deduction
under section 80 IB (10).

7. The Assessing Officer then took note of the amendment in Section
80 IB(10) with effect from 1st April 2004 whereby it is provided that “the
built up area of the shops and other commercial establishments included
in the housing project does not exceed 5% of the aggregate built up area
of housing project, or 2,000 sq ft, whichever is less”. The Assessing
Officer was of the view that this amendment is effective assessment year
2003-04, this amendment is only explanatory in nature. The Assessing
Officer further made certain observations about final completion
certificate, as also certain other issues, but those aspects of the matter
are not really relevant so far as issue in appeal before us is concerned.
The Assessing Officer, based on the reasoning discussed above, declined
deduction claimed by the assessee under section 80 IB (10). Aggrieved,
assessee carried the matter in appeal before the CIT(A) but without any
success.

8. Learned CIT(A) elaborately discussed the findings of the Assessing
Officer observed that the rationale for the Assessing Officer’s declining
the deduction can be summed up as on the following basis:

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Brahma Associates & Ors
– Special Bench

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(i) On verification, it was found that the project of the appellant
had been sanctioned by the local authorities as Residential +
Commercial. The plans submitted by the appellant were of its own
choice which enumerated both residential and commercial
construction. If the appellant had floated two different projects, one
being purely residential and the other being purely commercial and
had submitted the lay out plan accordingly, it would have been
approved by the PMC.

(ii) The project was still incomplete in March, 2006. The
appellant was following project completion method and, therefore, no
deduction was available in the year under consideration.

(iii) The commercial areas consisting of buildings C-1 & C-2 was
more than 7000 sq.mtrs. whether the plot area is taken at 22789.79
sq.mtrs. or taken at 34209.79 sq.mtrs. as claimed by the appellant. It
is more than 30% of the plot area if deductions as per PMC Rules is
made. In any case the commercial area is more than 20% of the plot
area if the plot area is taken at 34209.79 sq.mtrs. and such
deduction as per PMC Rules is made while as per DP Rules such
commercial area for convenient shopping could not be more than 5%
of the area of the plot.

(iv) The usage of the commercial areas for convenient shopping
was not for the purposes of which it was sanctioned and the areas of
some shops being more than 20 sq.mtrs. further infringed the DP
Rules.

(v) The amended provisions of section 80IB(10) are clarificatory
for otherwise, section 80IB(10) could not be harmoniously
interpreted. For the same project, the condition commercial area
being less than 5% or 2000 sq.ft. whichever is less would not be
applicable for the year under consideration while for the A.Y 2005-06
such condition would be applicable to disallow the deduction.

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– Special Bench

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9. Learned CIT(A) then also summarized the main contentions of the
assessee, in support of admissibility of deduction under section 80 IB
(10) as follows :

(i) The project was approved prior to 31-3-2005, development
was started after 1-10-1998, area of plot was more than 1 acre and
the residential units were less than 1500 sq.ft. As all the conditions
for claim under section 80IB(10) were satisfied, the deduction under
the said section was wrongly disallowed by the Assessing Officer.

(ii) The appellant was following project completion method and
consistently following recognized sales method, which is an
accepted method of accounting. The appellant had competed and
handed over the residential units in the accounting period relevant to
the Assessment Year 2003-04.

(iii) The appellant never claimed that commercial area
constructed was convenient shopping as the two separate buildings
were constructed for commercial area. The Assessing Officer’s
observation regarding commercial area being more than 20% of the
plot area while as per DP Rules it was allowed at not more than 5%
or 2000 sq.ft. whichever is less is, therefore, not correct. Also, for
the same reasons, the Assessing Officer’s observation regarding
usage if convenient shopping not for the purposes for which it was
sanctioned and the area of the shops being more than 20 sq.mtrs. is
not applicable.

(iv) The area of the plot after amalgamation as per the 6th
completion certificate received was 34209.79 sq.mtrs. while the total
built up area of the commercial buildings C-1 & C-2 was 7128.872
sq.mtrs. The commercial units are housed in separate building C-1 &
C-2, which are separately fenced from the residential buildings.
There are two separate co-operative societies for the commercial

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– Special Bench

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and residential units and tax had also been paid on the commercial
units in the next year.

(v) The amendment to section 80IB(10) specifically lays down
that it was applicable with effect from 1-4-2005 and, therefore, it was
not clarificatory in nature.

(Vi) The possession of commercial units was not given prior to
31-3-2003 except allowing two parties to carry out renovation.

(vii) The incentive provisions are to be interpreted liberally.

10. Having thus noted the rival contentions of the assessee and the
Assessing Officer, learned CIT(A) formulated the following two issues for
his considerations and proceeded to adjudicate on the same :

(i) Whether the amendment to section 80IB(10) w.e.f 1-4-2005
was retrospectively applicable?

(ii) Whether the deduction under section 80IB(10) is available to
a housing project by splitting the project into residential and
commercial buildings for the assessment year under consideration.

11. As for the first question that he posed to himself, i.e. whether or
not the amendment to Section 80 IB(10) with effect from 1st April 2005 is
prospective or not, learned CIT(A) held that this amendment can only be
prospective in nature. The relevant discussions in the impugned order are
as follows :

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